February 2026 market update: Global share markets delivered mixed results, with Europe and Japan performing strongly while US technology shares pulled back slightly. New Zealand shares rose 2.3% during the month, and global bond markets rallied as investors moved toward safer assets. Interest rate expectations remain uncertain as inflation gradually cools.

Important note: March has since brought a new wave of uncertainty following escalating tensions in the Middle East. Those developments are still unfolding and may influence markets in the weeks ahead. We explore the potential implications in our Research Hub article on the situation in Iran and what it could mean for markets:https://simplicity.kiwi/learn/research-hub/iran-tensions-potential-impact 

In this update, we focus on what happened during February and the economic signals investors were watching before the latest geopolitical developments.

United States: slowing growth but resilient companies

Economic data from the United States pointed to slightly softer momentum in February. Retail sales and inflation readings came in below expectations, which strengthened the view that the US Federal Reserve could consider lowering interest rates later in the year. However, minutes from the Fed’s first meeting of 2026 also showed officials warning that rate hikes could still be possible if inflation unexpectedly rises again.

Growth slowed toward the end of 2025, with GDP expanding at a 1.4% annualised rate in the fourth quarter. The prolonged US government shutdown contributed to that slowdown, although consumer spending and investment linked to artificial intelligence (AI) remained relatively strong. Core Personal Consumption Expenditures (PCE) inflation, one of the Fed’s key inflation measures, came in at 2.9%.

Politics also played a role in markets. The US Supreme Court ruled that President Donald Trump exceeded his authority when imposing tariffs under the IEEPA framework. Markets initially rallied on hopes of tariff relief, although the White House quickly responded by introducing temporary levies under alternative legal provisions.

US shares: rotation away from technology

Major US share markets delivered mixed results during February. The S&P 500 fell 0.8% while the Nasdaq 100 declined 2.3%, largely reflecting a pullback in some of the large technology companies and AI-related software stocks that had previously led the market higher.

Despite this, the broader US market remained relatively strong. Corporate earnings were solid, with S&P 500 company profits growing around 14% year on year and all sectors reporting earnings growth. Some investors also shifted toward more defensive parts of the market, with utilities, energy and materials among the strongest performing sectors.

Outside the US market, several regions performed better in February.

Europe, the UK and Japan: steady gains

European share markets had a positive month as investors rotated away from US markets and into other regions. Energy, communications and real estate companies performed particularly well. The European Central Bank kept interest rates at 2% as inflation in the eurozone fell to around 1.7%. France also passed its long-delayed 2026 budget, which includes measures aimed at reducing the fiscal deficit while increasing defence spending.

In the UK, shares also moved higher. Healthcare, materials and utilities led gains, while the Bank of England kept its policy rate unchanged at 3.75%. Economic growth remained modest, with GDP rising just 0.1% year on year in the fourth quarter and inflation easing to about 3%.

Japan was one of the strongest performing markets globally in February. Both the TOPIX and Nikkei indices rose by more than 10% during the month. Investor confidence was boosted by the Liberal Democratic Party’s landslide election victory, which reinforced expectations of political stability and pro-growth economic policies. Inflation continued to moderate, and markets expect the Bank of Japan to gradually tighten interest rates over time.

New Zealand: shares rebound and interest rates remain steady

The NZ share market had its best monthly return in some time, rising 2.3%. While the local market has lagged global peers over the past several years, February provided a timely reminder that returns can come in bursts.

The Reserve Bank of New Zealand (RBNZ) kept the Official Cash Rate - aka the OCR - at 2.25% during the month. Inflation remains slightly above the central bank’s target range of 1% to 3%, with increases in food prices, electricity costs and local council rates among the main contributors. For a more in depth look into how inflation works and the main drivers of cost, you can listen to episode 12 of Economy Made Simple with Chief Economist Shamubeel Eaqub on Spotify, Apple or Youtube.

Interest rates and bond markets

Global government bond markets had a relatively strong month in February, with bond prices rising and yields falling across many major economies. Longer-dated US Treasury bonds, UK government bonds (gilts) and German government bonds (bunds) all performed well as investors sought more defensive assets amid rising geopolitical tension as well as uncertainty on the outlook for AI. For more around AI and whether it's a potential 'bubble', you can check out Shamubeel Eaqub's write up on the Research Hub here.

Longer-dated US Treasury bonds, UK government bonds and German bonds all benefited from falling yields. Just a reminder, in very simplistic terms, bond prices rise when yields fall. Expectations for US interest rate cuts softened slightly toward the end of the month after Fed officials struck a cautious tone and core PCE inflation remained relatively firm.

What investors are watching next

February highlighted several themes that are likely to continue shaping markets this year: a gradual slowdown in the US economy, strong corporate earnings, shifting leadership between sectors and regions, and ongoing debate around the timing of interest rate cuts.

Global interest rate expectations also continued to evolve during the month. Earlier in February, softer US economic data strengthened the view that the Federal Reserve may eventually be able to lower interest rates later this year. However, toward the end of the month, some of that optimism faded after Fed officials struck a more cautious tone and core Personal Consumption Expenditures (PCE) inflation - one of the most important inflation measures in the US - remained relatively firm.

For investors, the interaction between interest rates and bond markets remains important. When expectations shift toward lower interest rates, bond prices tend to rise. When rate cuts look less certain, bond yields can move higher again. February saw both of these forces at play as markets adjusted to incoming economic data.

TL;DR - February summary

• US share markets were mixed, with the S&P 500 down 0.8% and the Nasdaq 100 down 2.3%
• European and Japanese markets performed strongly, with Japan rising more than 10% during the month
• The New Zealand share market rose 2.3%, one of its stronger months recently
• Global bond markets rallied as investors moved toward safer assets
• Interest rate expectations remain uncertain as inflation gradually cools

Short-term market movements can be uncomfortable, but they are a normal part of long-term investing. For KiwiSaver investors with long time horizons, the key is staying diversified and avoiding reactive decisions based on short-term headlines.

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